OVERVIEW OF INPATIENT HOSPITAL APR-DRG PRICING...needed to care for a patient in a particular DRG...

/ ©2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED1

MARCH 2016

OVERVIEW OF INPATIENT

HOSPITAL

APR-DRG PRICING


TABLE OF CONTENTS

SECTION 1: Overview of DRGs

SECTION 2: Billing Changes

SECTION 3: Alabama Medicaid APR-DRG Payment Method Design

SECTION 4: Frequently Asked Questions

SECTION 5: Alabama Medicaid DRG Pricing Formula

SECTION 6: Pricing Examples


OVERVIEW OF DRGS

/ ©2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED4 / ©2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED4

• Payment is based on patient acuity, not length of stay

• Single payment per hospital stay

• Each DRG has a relative weight that reflects the typical hospital resources

needed to care for a patient in a particular DRG category

• Payers determine a “relative weight” for each DRG that represents the

resource requirements for a particular service in comparison to all other

services

• For example:

- If the DRG base price is $3,000 and the DRG relative weight is 0.50, then the

DRG base payment is $1,500.

- Similarly, if the DRG relative weight is 2.0, then the DRG base payment is $6,000

CHARACTERISTICS OF DRG PAYMENT


MS-DRG VS APR-DRG

Category MS DRG APR DRG

Population Medicare 65+ population All patients

Data

requirements

Diagnoses, procedures, age, sex,

discharge status

Diagnoses, procedures, age, sex,

discharge status, birth weight

MDCs Pre-MDC and 25 MDCs Pre-MDC and 25 MDCs

Number of base

DRGs

747 (745 + 2 error DRGs) 1258 (314 base DRGs x 4 subclasses + 2 error

DRGs)

Diagnoses 3 Levels:

• Major CC

• CC

• Non CC

** Note: not all base DRG have a severity

designation.

4 levels for SOI and 4 levels for ROM:

1. Minor

2. Moderate

3. Major

4. Extreme

** Note: 4 levels of Severity and Risk are

assigned to every DRG.


• Consideration of MS-DRGs for Medicaid Payment:

- Designed for Classification of Medicare Patients…

Source: CMS, “Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal

Year 2008 Rates; Final Rule,” Federal Register 72:162 (Aug. 22, 2007): 47158

MS-DRG GROUPER

“The MS-DRGs were specifically designed for purposes of

Medicare hospital inpatient services payment… We simply do

not have enough data to establish stable and reliable DRGs

and relative weights to address the needs of non-Medicare

payers for pediatric, newborn, and maternity patients. For this

reason, we encourage those who want to use MS-DRGs for

patient populations other than Medicare [to] make the relevant

refinements to our system so it better serves the needs of

those patients.”


DRGs IN STATE MEDICAID PROGRAMS

APR-DRGs

MS-DRGs

*

*

CMS-DRGs

AP or Tricare DRGs

Per Stay/Per Diem/Cost

Reimbursement/Other

***

**

*

**

*

* *

* Indicates Moving Toward

** Indicates Under Consideration


• APR-DRGs were developed by 3M Health Information Systems

• APR-DRG consists of 314 base DRGs. Each base DRG has four levels of severity:

- Level 1: minor

- Level 2: moderate

- Level 3: major

- Level 4: extreme

• There are a total of 1,256 separate codes and relative weights. The number of

codes is subject to change.

• There are two additional “ungroupable” DRGs

CHARACTERISTICS OF APR-DRGs


WHAT DO THEY LOOK LIKE?

DRG

Code DRG Description

Average

Length of

Stay

National

Relative

Weight

Casemix

Relative

Weight

Service

Policy

Adjustor

Age Policy

Adjustor Service Line Adult Service Line Child

001-1 Liver Transplant &/or Intestinal Transplant 7.2 7.0511 9.2609 1.00 1.0 Transplant Adult Transplant Pediatric




002-1 Heart &/or Lung Transplant 10.3 10.2533 13.4667 1.00 1.0 Transplant Adult Transplant Pediatric




003-1 Bone Marrow Transplant 16.81 5.4958 7.2182 1.00 1.0 Transplant Adult Transplant Pediatric




004-1 Tracheostomy w MV 96+ Hours w Extensive Procedure or ECMO 17.7 6.1805 8.1175 1.00 1.0 Misc Adult Pediatric




005-1 Tracheostomy w MV 96+ Hours w/o Extensive Procedure 19.04 5.0328 6.6101 1.00 1.0 Misc Adult Pediatric




006-1 Pancreas Transplant 5.88 6.2759 8.2428 1.00 1.0 Transplant Adult Transplant Pediatric




020-1 Craniotomy for Trauma 5.17 1.8330 2.4075 1.00 1.0 Misc Adult Pediatric





• Two basic types of APR-DRGs

- Medical – assigned primarily based on the diagnosis codes

- Surgical – assigned primarily based on the ICD surgical procedure codes

• 3-digit “base” APR-DRG is generally assigned based on the principal diagnosis

code (medical DRGs) or the most significant surgical procedure code (surgical

DRGs)

• Severity of illness is determined based on secondary diagnosis codes and less

significant surgical procedures

• Documentation regarding APR-DRGs is available at

www.aprdrgassign.com

Please contact Solomon Williams at [email protected] or Peggy

Carstens at [email protected] to get the user ID and password for Alabama hospitals.

DETAILS REGARDING APR-DRGs

http://www.aprdrgassign.com/

mailto:[email protected]

mailto:[email protected]


ASSIGNING A DRG CODE AND PRICE TO A CLAIM?

• Principal Diagnosis

• Secondary

Diagnoses

• POA Indicators

• Surgical Procedures

• Patient Age

• Patient Gender

• Discharge Status

DRG

Assignment

Severity of

Illness (SOI)

Assignment

DRG

Relative

Weight

Policy

Adjustor

DRG Base

Payment

It is the hospital’s

responsibility to ensure that

the coding used is accurate

and defensible.

Many factors are included in

the determination of the DRG

Base Payment. Hospital

Base Rate


Coding requirements are significantly different for APR-DRGs, even when compared

to the requirements under the current Medicare MS-DRG model.

CODING UNDER APR-DRG

Patient RecordVersion 1

Coding

Version 2

Coding

DX 1 – V3000 – Live newborn Include Include

DX 2 – 745.4 – Ventricle septal defect Include Include

DX 3 – V290 – Observation Exclude Include

DX 4 – 745.5 – Ostium secoundum type arial septal defect Exclude Include

DX 5 – 774.6 – Unspecified fetal and neonatal jaundice Exclude Include

MS-DRG Same DRG assignment: 389, Full Term Neonate w/Major Problems

APR-DRG

Different DRG assignments: 640, Neonate Birthwt >

2499G, Normal Newborn or Neonate w Other

Problem

SOI = 2

RW = .1871

SOI = 3

RW = .4847

Base Payment Version 1: ($7,000 * 0.1871 = $1,309.70)

Base Payment Version 2: ($7,000 * 0.4847 = $3,392.90)


BILLING CHANGES


• All deliveries (recipient is the mother) and all births (recipient is the newborn)

must be billed on separate claims, even when the newborn is healthy and is in

the hospital for a short period of time. APR-DRG payment is calculated

separately for the delivery and the birth.

• Birth weight billed as a number of grams must be included for all newborns

whose age at date of admission is less than or equal to 28 days.

◦ Birth weight is billed as a value amount along with value code “54”

• Interim claims:

o Interim claims must be a minimum of 30 days in length to allow for payment

o Second, third, fourth, etc … interim claims must be billed as adjustments to the

original interim claim and include dates of service from date of admission through

current billing date

o Each interim claim will be paid under normal DRG pricing rules

BILLING CHANGES


• Present On Admission (POA) indicators will be validated in all diagnosis codes that

are not exempt from POA

• If a recipient is dually eligible for Medicare and Medicaid and his/her Medicare Part

A benefits are fully consumed during a hospital stay, then the hospital can submit a

regular Medicaid claim (not a Medicare crossover claim) Occurrence Code “A3”

included along with the date in which Medicare Part A benefits were exhausted.

Medicaid will calculate a full DRG payment, then prorate it downward based on the

number of days payable by Medicaid (i.e. the number of days after Medicare Part A

benefits exhausted).

BILLING CHANGES


ALABAMA MEDICAID APR-DRG PAYMENT

METHOD DESIGN


KEY APR-DRG DECISIONS

Design Consideration Options/Comments

DRG Grouper

• APR-DRGs are best fit and most popular DRG solution for a

Medicaid population

• Other options, MS-DRG, Tricare, APS-DRGs

DRG Relative Weights

• Adopt national weights

• Adopt national weights re-centered to AL Medicaid population

• Calculate state-specific weights

Hospital Base Rates

• Statewide standardized amount

• Peer group

• Hospital specific

Targeted Policy

Adjustors

• None

• Potential adjustors for:

o Targeted service lines

o Specific age groups (generally pediatrics)

o Targeted hospitals




Outlier Payment Policy

• None

• Adopt “Medicare-like” model – fixed loss threshold and marginal

cost percentage

Inlier Payment Policy

• None

• Charge cap

• Low-cost outlier policy

• Short stay outlier policy

Transfer Payment Policy

• None

• Acute-to-acute transfers – applicable discharge statuses

• Post acute transfers

Partial Eligibility

(a.k.a. Non-Covered

Days)

• Use lower of DRG and per diem payment

o Loss of Medicaid eligibility during hospital stay

o Stay longer than limit for undocumented alien

• 2 days for vaginal delivery

• 4 days for C-section

• 3 days for all other services




Budget Goal

• Budget neutral

• Set by State or set by historic experience

• Budget neutral for all inpatient services, or

individually by hospital

Transitional Period

• None

o October 1, 2016

• If transitional period, then: a) Timeframe, b) Method

of integration

Payment for Administrative Days• None

• Per diem or add-on payment

Anchor Date• Date of admission

• Date of discharge

Documentation and Coding

Improvement Adjustment

• None

• Adjust for expected increase in “paid” case mix due

to improved documentation and coding of claims

• 6% for Children’s of Alabama

• 2% for all other hospitals




Interim Claims

• No

• Yes

o ≥30 days

o Paid via DRG

o Additional interim claims submitted as

adjustments to original claim with dates of

service back to admission date

Payment for Specialty Providers

(Psychiatric, Rehabilitation, LTAC,

Other)

• Include in DRG payment method

• Exclude from DRG method

o Free-standing Psych

• Hybrid method, such as per diem adjusted for

acuity

Payment for Specialty Services

(Psychiatric, Rehabilitation,

Transplant, Clotting Factors,

Administrative Days, Other)

• Include in DRG payment method

• Exclude from DRG payment method

o Transplants

• Pay in addition to DRG payment




Per-Claim Add-On

Payments

• None

• Supplemental Payment

Hospital Acquired

Conditions

• None

• Hospital Acquired Conditions (HACs) payment

reduction using APR-DRG software

Mid-stay enrollment

change (FFS to RCO;

RCO to FFS; or RCO to

RCO)

• The payer with which the recipient is enrolled on date

of admission will be responsible for reimbursement for

the entire hospital stay

• The payer with which the recipient is enrolled on date

of discharge will be responsible for reimbursement for

the entire hospital stay

Billing rule changes• None

• Described in previous section


• Payments under APR-DRG in Alabama uses four peer groups

• Peer groups represent similar provider “buckets” based upon patient mix, service

offerings and hospital type

• Each peer group has a unique base payment rate under APR-DRG

PEER GROUPS

Peer Group

Children’s Hospital of Alabama

USA Women’s and Children’s

Academic Teaching Hospitals

• University of Alabama Hospital

• USA Medical Center

All Other Hospitals


• Alabama Medicaid Agency uses service line adjustors to modify payments for

certain services performed in an inpatient setting

• Service lines selected for an adjustment “factor” align with the mission of the

Medicaid program and key service offerings for the patient population

• Each APR-DRG is assigned to a service line

• The default service line adjustment factor is 1.0

POLICY ADJUSTORS

Service Line Factor

Normal Newborn 1.3

Obstetrics 1.3

Neonatal 1.3

Mental Health – Adult* 2.0

Mental Health – Pediatric 1.5

*Adult ≥ 18 years of age


FREQUENTLY ASKED QUESTIONS


Q – Can an example of my claims, grouped and priced under APR-DRG be

provided?

A – Yes.

• Claims used to develop APR-DRGs will be provided to their corresponding

provider - State Fiscal Year 2014 (10/01/2013 – 09/30/2014).

• In addition, a second extract of claims processed after Oct. 1, 2015. (i.e. ICD-

10 implementation) through March will be provided.

• Finally, starting in April and each month leading up October 1, 2016 (when

APR-DRGs go live) an extract of all claims processed that month will be

provided.

• Claims will be provided in Excel format for users to review. Excel workbooks

will contain all steps in calculating APR-DRG payment but not the formulas.

Just the numeric values.

• Claim extracts are for illustrative purposes only to reflect how the claim as

submitted would group and price under APR-DRG and do not reflect actual

payment



Q – Is Risk of Mortality (ROM) used in the calculation of DRG?

A – No. Risk of mortality values are not used in the calculation of DRG payments.

Q – Does the DRG code need to be entered on claims?

A – No, hospitals do not need to include the DRG code on their submitted claims.

The DRG code and severity of illness (SOI) will be assigned by the Alabama

Medicaid Management Information System (AMMIS) during the claims adjudication

process.

Q – Will the Alabama Medicaid remittance advice (RA) include DRG values?

A – Yes the APR-DRG code, including severity of illness will be included on the

paper remittance advice and on the electronic 835.



ALABAMA MEDICAID DRG PRICING

FORMULA


DRG BASE PAYMENT

DRG

Base

Payment

DRG Relative

Weight

DRG

Base

Ratex= x

Optional

Policy

Adjustment

Factors

Note: DRG base payment is sometimes reduced on transfer and partial eligibility claims.

DRG Base

Payment

Outlier

Payment (If

claim

qualifies)

Claim

Payment +=Per Claim

Supplemental

Payment+


OUTLIER PAYMENT

Outlier

Payment

(if claim

qualifies)

= Outlier

Threshold

Marginal

Cost Factor

Estimated

Hospital

Costx-( )

DRG Base

Payment

Outlier

Payment (If

claim

qualifies)

Claim

Payment +=Per Claim

Supplemental

Payment+


SUPPLEMENTAL PAYMENT

=

DRG Base

Payment

Outlier

Payment (If

claim

qualifies)

Claim

Payment +=Per Claim

Supplemental

Payment+

Per Claim

Supplemental

Payment

Supplemental

Payment

Factorx+( )DRG Base

Payment

Outlier

Payment (If

claim

qualifies)

Note: Supplemental Payment Factor is the same value for all hospitals.


EXAMPLES

DRG

Hospital

Base Rate

DRG

Relative

Weight

Policy

Adjustment

Factor

DRG Base

Payment

Estimated

Hospital Cost

Claim

Outlier

Threshold

Outlier

Payment

Final DRG

Payment

123-4 $5,000 0.40 1.00 $2,000 $2,500 $27,000 $0 $2,000

432-1 $5,000 2.25 1.25 $14,063 $12,000 $39,063 $0 $14,063

678-4 $5,000 9.50 1.00 $47,500 $80,000 $72,500 $6,000 $53,500

Notes:

- Examples for illustration purposes only

- Assuming outlier cost threshold equal to $25,000

- Assuming outlier mariginal cost percentage equal to 80%

= [Hosp Base Rt] * [DRG Rel Wt] * [Policy Adj Factor]

= [DRG Base Pymt] + [Outlier Pymt]

= [Fixed Outlier Threshold] + [DRG Base Pymt]

= ([Est Hosp Cost] - [Claim Outlier Thrshld]) * [Marg Cost Factor]

* These examples exclude per-claim supplemental payments.


PRICING CALCULATION FLOW

DRG casemix relative

weight, average length of

stay, service adjustor

Calculate base

payment = [hosp base

price] * [DRG rel wt] *

[max policy adjustor]

Adjust DRG base

payment for acute-to-

acute transfers (if

applicable)

Calculate outlier

payment amount

Calculate Per Claim Suppl

Pymt = [Final DRG Pymt]

x [Suppl Pymt Prcnt]

Calculate Reimb. Amount

= [Allowed Amount] –

[Other ins] – [Pat Res]

Adjust payment for

non-covered days

Calculate Final DRG

Pymt = [Adjstd DRG

Base Pymt]

+ [Adjstd Outlier Pymt]

DRG

Data

Provider

Data

Hospital base rate,

cost-to-charge ratio

Calculate Medicaid

Allowed Amt = [DRG

Pymt] + [Suppl Pymt]


PRICING EXAMPLES


BASIC EXAMPLE

Final Allowed Amount Value

Covered Day Reduction Factor 1.00

Final Base DRG Payment $8,163

Final Outlier Add-on Payment $0.00

Supplemental Payment Factor 0.12360

Supplemental Payment $1,009

Final Allowed Amount $9,172

Base Payment Information Value

DRG Relative Weight 1.6326

DRG Base Rate $5,000

Applicable Policy Adjustor 1.00

Unadjusted DRG Base Payment $8,163

Claim / Encounter Information Value

Submitted Charges $84,000

Length of Stay

(Admit through Discharge)3

Medicaid Covered Days 3

Transfer No

Patient Age 55

DRG (knee joint replacement) 302-2

Outlier Add-on Payment Value

Hospital Specific CCR 0.25

Claim Cost (CCR x Charges) $21,000

Fixed Loss Threshold $25,000

Claim Outlier Threshold $33,163

Hospital Cost Above Threshold $0

Marginal Cost Percentage 80%

Unadjusted Outlier Add-on Payment $0

Note: The Final Reimbursement Amount to providers is subject to other insurance payments


POLICY ADJUSTOR EXAMPLE




Final Outlier Add-on Payment $0.00


Supplemental Payment $493









Length of Stay



Transfer No

Patient Age 16

DRG (Bipolar Disorder) 753-2






Hospital Cost Above Threshold $0





• Alabama Medicaid Agency adopted a “Medicare-like,” cost-based approach for

outlier payments

• To be eligible for an outlier payment, an individual claim must exceed a fixed-loss

threshold amount of $25,000

• An 80% marginal cost factor is applied to excess costs above the DRG base

payment plus fixed-loss threshold

Outlier Payment =

( [Est. Hosp Cost] – [DRG Payment + Fixed-Loss Threshold] ) × Marginal Cost Factor

Outlier Payment =

( [Est. Hosp Cost] – [DRG Payment + $25,000] ) × 0.80

OUTLIER PAYMENT POLICY


OUTLIER EXAMPLE



Length of Stay



Transfer No

Patient Age 55





Final Outlier Add-on Payment $43,470














Hospital Loss Above Threshold $54,337


Unadjusted Outlier Add-on Payment $43,470



• Alabama Medicaid Agency adopted the Medicare acute-to-acute transfer model

• Transfer payment adjustment applies to the transferring hospital

• The receiving hospital gets full DRG payment (unless they also transfer the patient)

• Transfer policy calculates a “Transfer Base Payment” and selects lessor of full DRG

Base Payment and Transfer Base Payment.

• One day is added to cover additional costs for admission, diagnosis and

stabilization on first day of stay at transferring hospital

• Transfer Base Payment = (DRG Base Pymt) ÷ (DRG ALOS)

x (Actual Len of Stay + 1)

• The following discharge status codes trigger the transfer payment policy:

02, 05, 65, 66, 82, 85, 93, 94

TRANSFER EXAMPLE - FORMULA


TRANSFER EXAMPLE



Length of Stay



Transfer Yes

Patient Age 0

DRG (Neo Bwt 1250-1499G

w Maj Problem)607-3




Final Outlier Add-on Payment $0


Supplemental Payment $244







Transfer Payment Value

DRG National Avg Length of Stay 44.31

Transfer Per Diem

(DRG Base Pay ÷ National Avg LOS)$987

Transfer Base Payment $1,974

Lessor of DRG and Transfer Pymt $1,974


Hospital Loss Above Threshold $0




• Potential Reasons for a Covered Day Adjustment:

- Medicare dual eligibles in which the recipient’s Medicare Part A coverage is

exhausted during the stay

- Medically needy recipients, who gain Medicaid eligibility during the middle of a

hospital stay

- Undocumented immigrant whose length of stay is longer than the number of

payable days

• Adjustment method in Alabama Medicaid: Per Diem Reduction Factor

based upon length of stay (LOS)

- Lesser of:

(Covered LOS) / (DRG Avg LOS) OR 1.0

COVERED DAY ADJUSTMENT


COVERED DAY EXAMPLE – PER DIEM METHOD



Length of Stay



Transfer No

Patient Age 55



DRG National Avg Length of Stay 3.30

Covered Day Reduction Factor1 0.6061


Final Outlier Add-on Payment $26,347














Hospital Loss Above Threshold $54,337


Unadjusted Outlier Add-on Payment $43,470

Notes: 1 Factor is set to 1 if covered length of stay is greater than DRG average length of stay.

The Final Reimbursement Amount to providers is subject to other insurance payments.


DRG CALCULATOR

/ ©2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED43navigant.com

MORE INFORMATION

Some information provided in this presentation is

obtained through use of proprietary computer software

and data created, owned and licensed by the 3M

Company. All copyrights in and to the 3MTM Software are

owned by 3M. All rights reserved.

[email protected]

http://medicaid.alabama.gov/CONTENT/4.0_Programs/4

.4.0_Medical_Services/4.4.6_Hospital_Services.aspx

www.aprdrgassign.com


http://medicaid.alabama.gov/CONTENT/4.0_Programs/4.4.0_Medical_Services/4.4.6_Hospital_Services.aspx


OVERVIEW OF INPATIENT HOSPITAL APR-DRG PRICING...needed to care for a patient in a particular DRG...

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